LHV analyst: Slowdown deepened in May, won't know truth till fall

Shopping mall interior.
Shopping mall interior. Source: Anna Aurelia Minev/ERR

While Estonia's trade slowdown deepened in May, there were some bright spots, particularly in the retail sector, rejuvenated by the lifting of restrictions, according to an analyst from Estonian bank LHV Pank.

International trade and industrial production, however, remain mired, and the full picture of how the economy is looking will not be clear until at least fall, coronavirus second wave or no coronavirus second wave, the analyst said.

The emergency situation imposed by the government March 12-May 17, in response to the coronavirus pandemic, was the main culprit, LHV analyst Kristo Aab told BNS.

"Restrictions imposed in the emergency situation had a hindering effect on all activities," he said, adding that exports of fuels decreased the most at 57 percent – accounting for about a third of the decline in exports, with a decline in exports of machinery and equipment and furniture also having a significant impact.

Retail has picked up

Local traders, however, can breathe a bit more easily following the ending of the emergency situation, the lifting of most restrictions inside Estonia, and the opening up of borders and flight links.

"After the reopening of the malls in mid-May, people quickly found their way back to the stores," he said. Shopping malls were closed for several weeks at the peak of the pandemic, with only a few essential service providers inside malls, such as pharmacies and bank offices, permitted to continue working.

Retail sales, which fell by around a fifth in April, bounced back nicely in May, and the sales volume of May this year was only 1 percent lower than the same time last year, he noted.

Consumption has been strongly positively affected by government support measures, in particular the Unemployment Insurance Fund's wage compensation measure, which has maintained people's incomes despite the cessation of economic activity, Aab said.

After initially being intended for just two months, the scheme, which provides up to 70 percent of an employee's wage up to a maximum of €1,000, has been extended.

Continued downturn, unemployment inevitable

Looking ahead, even with uncertainty about the likelihood of a strong second wave of coronavirus infections in fall, Aab said that the trend will be for downturn, particularly in employment.

"There is still no clear position on the possible second wave of the virus and even if Estonia is able to control the virus, how the other countries around us cope with it is even more important from an economic point of view," Aab went on.

As reported on ERR News, on-year exports and imports to May both fell by around a quarter, with Aab noting that industrial production figures saw a similar fall (of 18 percent).

Aab said the future of the industry is still bleak in the next few months. "

The number of export orders has fallen drastically and companies are more pessimistic than ever about the recovery of orders," he said.

Continuing low oil prices and high CO2 quota prices continue to hold production back, he said.

In conclusion, Aab said that monthly indicators were not so far the be-all-and-end-all, not least because people's behavior was somewhat different as the coronavirus restrictions melted away and was informed by frustration at having to, in many cases, languish at home over several weeks, as well as the fact that the period coincided with the arrival of summer.

Ultimately, the real situation will become clearer in fall, he said.

"The moment of truth for the economy will come in the fall, when people are back from their summer holidays and the Unemployment Insurance Fund's  support measures have ended," Aab said.

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Editor: Andrew Whyte

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